Five years after Israel announced plans to privatize IMI Systems, the arms maker whose portfolio includes the Uzi submachine gun is being sold to Elbit Systems for 1.8 billion shekels ($520 million), the finance and defense ministries said Sunday.

Few details about the sale were released, and it is still subject to approval by the Antitrust Authority, which is expected to condition the deal on Elbit shedding IMI businesses to ensure that other Israeli defense companies aren’t harmed by the acquisition.

The deal will create a company with a heavy emphasis on research and development, and whose product range will extend from IMI’s shoulder-launched missiles, precision-guided mortar munitions and rocket-propulsion systems to Elbit’s portfolio of avionic systems, drones and intelligence and cybertechnology.

The deal comes amid contradictory policy aims for the defense industry, whose exports reached $6.5 billion in 2016, the last year for which figures are available. That was an $800 million increase from the before, according to Sibat, the Defense Ministry’s military exports unit.

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On the one hand, the Defense Ministry has sought to encourage mergers and acquisitions to make sure the local defense industry remains globally competitive with economies of scale. On the other, the Finance Ministry and Antitrust Authority are concerned that the combination of Elbit and IMI might put other Israeli defense companies like Israel Aerospace Industries and Rafael Advanced Defense Systems at a disadvantage.

Still, the combined company won’t be the single biggest supplier to the Defense Ministry, based on figures sources provided to TheMarker.

In 2016, based on a rate of 3.8 shekels to the dollar, state-owned Rafael was the biggest supplier of weaponry to the Defense Ministry, selling 3.5 billion shekels worth, or 31% of all procurement. For Elbit the number was 2.23 billion shekels, and for IMI, formerly known as Israel Military Industries, it was 1.21 billion shekels. So if Elbit and IMI had been a merged company that year, their combined share would have been 30%.

IAI had sales of 2.9 billion shekels, or a 26% market share. The figures don’t include exports, which make up a large part of all these companies’ revenues.

Although the IMI deal is by far the biggest takeover, Elbit, which is controlled by Michael Federmann, has been snapping up other Israeli defense companies over the years. Among its biggest acquisitions, it bought Nice Systems’ cybersecurity unit for $158 million three years ago and Soltam Systems for $90 million in 2010.

Between 2005 and 2011, it also acquired Tadiran Communications for $410 million and Elisra for $135 million.

By most estimates, Elbit dominates Israeli Defense Ministry procurements for land-based equipment, with some saying it accounts for 80% of the total and others 60%. But antitrust officials have said they don’t regard land-based equipment as a distinct market and overall Elbit’s market share is much smaller.

Still, Sources said Antitrust Commissioner Michal Halperin will examine the impact of the takeover on the companies that have bought equipment from IMI for their own products.

In particular, she will be looking at Elbit’s role as a systems integrator that uses other companies’ products for bigger systems, and whether Elbit might try to favor IMI over outside companies. Another issue is that IMI sells rocket propulsion systems to IAI and Rafael, which compete with Elbit.

The five-year period it took to reach Sunday’s agreement was due in part to bureaucratic infighting but also to the problems about competitive bidding and pricing. Nine out of the 10 companies that had initially expressed an interest in IMI dropped out of the bidding, leaving only Elbit.

To arrive at a price, three outside consulting firms were asked to value IMI, and even after that process was completed it was followed by months of negotiations. The price announced Sunday isn’t final and could rise by another 100 million, although the government statement was vague about what the mechanism for that would be.

The sale doesn’t include the prime real estate that IMI occupies, which will be turned over to the government and used to develop residential real estate as part of Finance Minster Moshe Kahlon’s plan to increase the housing supply and bring down prices.

Indeed, on Sunday, it was the housing element that Kahlon referred to exclusively in the ministry statement. “The agreement reached today continues the Finance Ministry’s policy of freeing up areas high-demand land for the public good ... [and] will enable construction of thousands of housing units.”

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